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    Overview

    According to the Brazilian Institute of Corporate Governance (IBGC), corporate governance is the system by which companies are managed and monitored, and involves the relations among shareholders, board of directors, board of executive officers, independent auditors and the audit committee. The basic guiding principles are: (i) transparency, (ii) fairness (iii) accountability, and (iv) corporate responsibility.

    The principle of transparency entails that management must inculcate the desire to inform not only the economic and financial performance of the company, but also all the other factors (even if intangible) that guide its operations. Fairness means the just and equal treatment of all minority groups, employees, clients, suppliers or creditors. Accountability is characterized by the status reports of operations provided by the corporate governance agents to those who elected them, and who are fully responsible for all their actions. Finally, corporate responsibility represents a broader vision of the corporate strategy, with the incorporation of the social order and environmental considerations while defining business deals and operations.
     

    Differentiated Practices of Corporate Governance

    In 2000, the BM&FBOVESPA introduced three special listing segments, known as Level 1 and 2 of Differentiated Corporate Governance Practices and Novo Mercado (New Market), aiming at fostering a secondary market for securities issued by Brazilian companies with securities listed on the BM&FBOVESPA, by prompting such companies to follow good practices of corporate governance. The listing segments were designed for the trading of shares issued by companies voluntarily undertaking to abide by corporate governance practices and disclosure requirements in addition to those already imposed by Brazilian law. These rules generally increase shareholders’ rights and enhance the quality of information provided to shareholders.

    Novo Mercado

    Mills' shares are negociated in the “Novo Mercado”. Aiming to maintain the highest standard of corporate governance, we celebrated on 19 March 2010, the contract with BM&FBOVESPA attempting to meet the listing requirements of the Novo Mercado. Companies that join the Novo Mercado voluntarily undertake to abide corporate governance practices and disclosure of information besides what is imposed by Brazilian law, the issuer must agree, to (i) issue only common shares, (ii) ensure that shares of the issuer representing at least 25% of its total capital are effectively available for trading, (iii) detail and include additional information in the quarterly reports, annual information and standardized financial statements and (iv) within two years after listing shares on the Novo Mercado, provide the annual financial statements in English and based on internationally accepted accounting principles.

    The standards and practices imposed by the Novo Mercado, attempt to bring transparency to the companies’ activities and economic situation to the market and also attempt to bring greater powers for minority shareholders to participate in the companies’ administration, along with many other rights. The main rules for the Novo Mercado are briefly described below.

    Novo Mercado Rules

    The main rules related to the Novo Mercado, those which the adhering companies are subjected, are briefly described below.

    First of all, the company intended to trade its securities on the Novo Mercado must obtain and maintain its registration with the Brazilian Securities and Exchange Commission ("CVM"). In addition, the company must, in conjunction with other conditions, establish Participation Agreement to Novo Mercado and adapt their by-laws to minimum provisions required by BM&FBOVESPA. Related to capital structure, must be exclusively divided into common shares and ensure that shares of the company representing at least 25% of its total capital are effectively available for trading. There is also a seal to the issuance of Participation Certificates (Partes Beneficiárias) (or maintenance in circulation) by companies listed on the Novo Mercado.

    The board of directors of companies allowed to have its shares traded on the Novo Mercado must consist of at least five members elected by the general assembly, with a unified term of not more than two years, with reelection allowed. At least 20% of the members of the Board of Directors must be independent. All new members of the Board of Directors and the Board of Executive Officers must sign a Statement of Consent of Directors, conditioned on possession in their respective positions to the signing of this document. By this Consent Agreement, the company‘s new management is personally committed to act in accordance with the Participation Agreement of the New Market, Arbitration Rules of the Market Arbitration Chamber and the Rules of the New Market.

    Among other requirements imposed on companies listed on the Novo Mercado, we highlight: (i) the obligation of carrying out a takeover bid for at least by the economic value under certain circumstances, for example, in the case of the cancellation of registration for trading on the Novo Mercado; (ii) adopt offering procedures that favor widespread ownership of shares whenever making a public offering; (iii) extension to all shareholders the same conditions provided by the controllers when they sell the company‘s control; (iv) obligations to provide non-financial information each quarter, such as, the number of shares held by the Company´s managers and the number of shares outstanding; (v) follow stricter disclosure policies with respect to transactions with related parties, and (vi) required submission of the company, its shareholders, administrators and members of the Audit Committee to the Arbitration Rules of the Market Arbitration Chamber BM&FBOVESPA for resolving conflicts that may arise between them related or originated from the validity, effectiveness, interpretation, breach and its effects of the provisions in the Brazilian Corporation Law, on the company‘s by-laws, the rules issued by the National Monetary Council (“CMN”), Brazilian Central Bank (“BACEN”) and Brazil’s Securities and Exchange Commission (“CVM”), in addition to those listed in the Participation Agreement of New Market, Arbitration Rules of the Market Arbitration Chamber and the Rules of the New Market.

    Due to the issue of CMN Resolution No. 3,456, which established new investment rules for closed pension funds, shares of companies that adopt corporate governance practices, such as those whose securities are admitted to trading on the special segment Novo Mercado or whose classification is Level 1 or Level 2 according to regulations issued by BM&FBOVESPA, may have greater participation in the portfolio of such pension funds. Thus, the shares of companies that adopt corporate governance practices have become, since the issue of CMN Resolution No. 3,456, an important and attractive investment for the closed pension funds, which are one of the biggest investors in the Brazilian capital market. This fact will promote the development of Novo Mercado, benefiting the companies, whose securities are traded here, including our Company.

    IBGC’s Code of Best Corporate Governance Practices

    The “Code of Best Practice for Corporate Governance", edited by IBGC has the objective to provide guidance on: (i) increase the value of the Company; (ii) improve the Company’s performance; (iii) facilitate the Company’s access to capital at lower costs; and (iv) contribute towards its sustainable performance. Among the corporate governance practices recommended by IBGC in its Code of Best Corporate Governance Practices, the Company adopts the following:

    I. Issue only common shares; 
    II. Policy of "one share equals one vote”;
    III. Hire independent auditing firm to analyze balance sheets and financial statements, of which this same company won’t be able to provide other services, which could compromise their independence. Our financial statements are audited by independent auditing firms since 1975;
    IV. Clear definition in the Bylaws for: (a) the mode of calling the General Meetings, and (b) the manner of election, removal and the mandate term of the Board of Directors and Top Management members;
    V. Transparency in the public disclosure of the administration annual report;
    VI. Location for implementing the General Shareholders Meetings chosen in order to facilitate the attendance of all members or their representatives;
    VII. To record their dissenting votes in the minutes of meetings or at the meetings, when requested;
    VIII. Prohibition of the use of privileged information and the existence of a disclosure of relevant information policy;
    IX. Clear definition in the Bylaws for a resolution through arbitration of conflicts that may arise among the Company and its shareholders;
    X. Directors with operational and financial background;
    XI. Clear definition in the Bylaws for sealing access to information and directors’ voting rights in the case of conflict of interest;
    XII. Grant tag-along rights to all shareholders in the event of a change in shareholder control. The shareholder acquiring control must hold a public tender offer for the stock of the other shareholders, offering the same price per share paid to the controlling bloc;
    XIII. Board of Directors composed from five to seven members.

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